Oue approach

Saipem uses a preventive approach to risk management, which aims to channel management choices and activities towards reducing any probable negative events and their impact from arising.  

Thus, Saipem adopts risk management strategies that depend on the nature and type of risk involved e.g. mainly financial and industrial risks, but also some strategic and operational risks, linked to the company’s very specific activity.

Risk management process


The Risk Management (“RM”) process features a structured, systematic approach, which expects the main risks to be effectively identified, assessed, managed, monitored, represented and, where possible, translated into opportunities and a competitive advantage.  

On the basis of the principles approved by the Board of Directors, Saipem has developed and implemented a model to integrate the management of corporate risks, which is an integral part of the System of Internal Control and Risk Management. 

The aim of this model is to obtain an organic, overall view of the main enterprise risks, which can impact the Company's strategic and management objectives.

The main business risks

The Group is currently involved in judicial, civil, tax and administrative legal proceedings.

Description and impacts

The Group is currently involved in judicial, civil, tax and administrative legal proceedings. For a summary of the most significant cases, see the “Guarantees, Commitments and Risks - Legal proceedings” section in the “Notes to the Consolidated Financial Statement”. Given the intrinsic, inescapable risk that accompanies legal proceedings, the Group may, in future, have to pay compensation for damages which are not covered or insufficiently covered by the legal fund, which are uninsured or which are of an amount greater than the maximum sum that may have been insured, even though the necessary assessments have been carried out on the basis of the applicable accounting standards, Furthermore, if it proves impossible to settle the disputes in legal proceedings brought by the Company by means of negotiation, the Company may have to bear additional costs as a result of the length of court hearings. The progress of legal proceedings also exposes the Company to potential effects on its image and reputation in the mass media or with clients and partners.

Mitigation

In order to maximise risk mitigation, Saipem uses specialised, external consultants, who assist the company in legal, civil, fiscal or administrative proceedings. Moreover, Saipem’s Board of Directors actively and continuously monitors the progress of its main legal proceedings.

 

The market scenario features a persistent, volatile trend in the price of oil and gas on international markets. This condition influences the investment policies of Saipem's main clients.

Description and impacts

The market scenario features a persistent, volatile trend in the price of oil and gas on international markets. This condition influences the investment policies of Saipem's main clients. and exposes the Company to: (i) delays in the negotiation process and possible cancellation of commercial initiatives for future projects, (ii) the cancellation and suspension of projects currently in progress (whether they are EPCI Lump Sum contracts or contracts for Drilling and Engineering services with added value), (iii) delays and difficulties in obtaining payment of contractual penalties established to indemnify the Company against the cancellation and suspension of such contracts; (iv) an increased level of aggressiveness in competitors’ commercial strategies, (v) delays and difficulties in obtaining variation orders for changes in the scope of the work requested by the client and executed by Saipem, (vi) delays and difficulties in renewing current contracts for onshore and offshore drilling fleets with economically advantageous terms and conditions prior to their expiry, (vii) international arbitration and disputes in the most significant cases.

Thus, Saipem is exposed to the risk of failing to strengthen, or of weakening, its commercial position, which could have major repercussions on certain product lines or specific geographical areas.

Mitigation

In order to mitigate any reduction in CAPEX investments by its clients in the Oil & Gas sector, Saipem has developed a new business model based on 5 divisions: Offshore Engineering & Construction, Onshore Engineering & Construction, Offshore Drilling, Onshore Drilling and XSIGHT, a new division dedicated to engineering services with high value-added. Moreover, the Company has also taken steps to enlarge its portfolio of clients and geographical markets, by seeking additional or alternative business sectors, e.g.: (i) maintenance, modification and operations (MMO) linked to OPEX investments in the Oil & Gas sector; (ii) process plant engineering for renewable energy sources (wind, sun); (iii) the construction of pipelines and water mains for civilian use and other industries (mining); (iv) the decommissioning of oil platforms, including plug & abandonment activities; (v) the construction of high speed railway lines; (vi) engineering services with high value-added in the energy sector in general (including renewable energy).

Saipem carries out part of its business activities in partnerships based on contracts that include the joint liability of the Company in the event of contract breaches by the partners, or it sets up mixed companies with the partners. Moreover, in some of the countries in which it operates, the Group executes its own development programmes by means of joint venture agreements with local or international operators.

Description and impacts

Saipem carries out part of its business activities in partnerships based on contracts that include the joint liability of the Company in the event of contract breaches by the partners, or it sets up mixed companies with the partners. Moreover, in some of the countries in which it operates, the Group executes its own development programmes by means of joint venture agreements with local or international operators. More specifically, business activities in partnerships is a common occurrence in this particular industry in order to strengthen competitive and commercial positions in certain geographical markets and for certain benchmark products. If the client should suffer damages due to a partner's breach of contract, Saipem may be obliged to complete the work originally assigned to the non-compliant partners or compensate for the damages caused by its partners, without prejudice to the possibility of exercising its right to recourse against the non-compliant associated enterprise. Moreover, relations with these partners could also be affected by any changes in the political, economic or social context of the countries in which Saipem operates. Under such circumstances, Saipem may not be able to maximise the profitability of its partnership agreements, as it would have less control over the various phases of the project carried out by the partner. Furthermore, the possible lack of agreement with international or local partners regarding project management procedures in the execution phase could impact negatively on the Saipem Group's ability to develop certain projects. Moreover, any deterioration in relations with such strategic partners could influence the management of commercial offers and negatively affect the possibility of acquiring new contracts over time. Any interruption of such joint venture agreements or the disposal of shareholdings in mixed companies could lead to the renegotiation of any previously stipulated contracts and cause commercial and legal disputes with the relevant partners and clients.

Mitigation

In order to mitigate such risks, Saipem is committed to maintaining positive, long-term relations with various local and international partners and to resolving any disputes emerging with its strategic partners regarding business activities in the countries in which it already operates or in which it has a commercial interest in operating. Furthermore, Saipem takes a series of steps (e.g. due diligence) to identify suitable partners for managing business activities in partnership or in joint ventures in compliance with the contractual conditions stipulated with its clients and the corporate procedures in the various geographical areas and business sectors in which Saipem operates.

Saipem bases its strategies on the analysis of macroeconomic and geopolitical scenarios, the reference markets and the technological developments used in them. Saipem also operates in an industry strongly affected by strategic changes.

Description and impacts

Saipem bases its strategies on the analysis of macroeconomic and geopolitical scenarios, the reference markets and the technological developments used in them. Saipem also operates in an industry strongly affected by strategic changes. where mergers and acquisitions operations and the creation of local or international joint ventures and alliances result in an ever-increasing concentration of competitors. Not only inadequate forecasts on the development of such scenarios, but also incorrect or delayed implementation of the strategies identified may expose the Company to the risk of not being able to adapt its business portfolio and, as a result, its competitive position to the changes in scenario affecting the industry in question. Therefore, these risks potentially expose Saipem to a weakening or deterioration in its strategic positioning within the sector and reduce the Group’s market shares and profit margins. Furthermore, this scenario can lead to a risk of concentrating certain clients or products in some geographical areas.

Mitigation

In order to ensure the Group’s competitive position is strengthened in line with the strategic changes of the industry and the continuously evolving competition, Saipem has embarked on the “Fit for the Future 2.0” programme and developed a divisional business model. Saipem uses specialised companies to regularly provide it with analyses and estimates on the trends in the relevant market segments and on macroeconomic, geopolitical and technological developments Moreover, the Company has set up the Sustainability, Governance and Scenarios Committee, whose responsibilities include helping the Board of Directors to examine and develop scenarios to prepare the strategic plan. In order to ensure Saipem's strategic position is strengthened, and corporate management pursues commercial opportunities that focus on a wide range of customers in the energy sector (International Oil Companies, National Oil Companies, Independent Companies, Utilities), with a global perspective of the relevant markets and an extensive product portfolio.

The Engineering & Construction and Drilling and Engineering sectors with high value-added are distinguished by the continual development of the technologies, assets, patents and licences they use.

Description and impacts

The Engineering & Construction and Drilling and Engineering sectors with high value-added are distinguished by the continual development of the technologies, assets, patents and licences they use. If the Company were unable to upgrade, acquire or develop the technologies, assets, patents and licences required to improve its operational performance, its competitive position could be harmed and it would have to modify or reduce its short- or long-term objectives as a result.

Mitigation

To maintain its competitive position, Saipem appropriately and continually updates its technologies, assets and licences at its disposal with the aim of aligning the services it offers with the present and future market requirements, in order to carry out its own business activities. Therefore, in addition to a major increase in research and development, which continues to be a key point of the strategy, Saipem has launched an initiative called the “Innovation Factory”, which consists of an incubator of ideas for developing “disruptive” methods and technologies to tackle the challenges of the sector. An emerging area of interest for the “Innovation Factory” is linked to the technologies aiming to increase energy efficiency in the operations and technologies, e.g. energy decarbonisation (further detailed information can be found in the specific section “Research and Development activities” in the financial statement). Saipem is supported by specialised companies in analysing the technological evolution of certain segments of the relevant market and the possible solutions clients may request in subsequent years (e.g., in the renewable energy sector). Lastly, the Group develops various kinds of agreements with companies that develop technological solutions not only in the energy industry, but also in other industries (e.g. digitalisation).

How Saipem conducts its business activities depends very much on its IT system, which it has developed over the years.

Description and impacts

The way in which Saipem conducts its business activities depends very much on its IT system, which it has developed over the years. More specifically, the Group’s IT system is exposed to potential cyber attacks for various purposes. Therefore, any malfunctioning, ineffective and inefficient factor in the IT systems can not only impact on corporate processes with economic and financial consequences, but also harm its reputation. If the Company fails to develop innovative IT solutions, it could compromise the success of its short- or long-term objectives. (further detailed information can be found in the specific section “IT System” in the financial statement). Lastly, Saipem will face the challenge and consequent risks connected with data enhancement to maintain and strengthen its competitive position in the sectors of Engineering & Construction, Drilling and engineering services with high value-added.

Mitigation

Saipem has developed a new transformation project, named IT Adaptive Sourcing, with various objectives, which include digitally transforming the Company and containing operating costs. To do this, Saipem has selected technological and service partners in the IT area, and launched an in-depth review of IT service procurement, with the aim of introducing the concept of a supply chain ecosystem. This ecosystem concept should guarantee Saipem coverage of its requirements thanks to the cooperative efforts of the suppliers to support the actions required not only for an individual supply area, but also for those activities that intrinsically require instrumental collaboration and integration. Saipem has also set up various IT initiatives in the business area, which pivot on the strategic pledge to develop a data-centric approach and a gradual, total digitisation of corporate work processes. More specifically, business developments have been directed towards process automation and a build-up of corporate data assets. Lastly, the Company currently runs not only governance activities, but also compliance and security processes implemented by the It department. The latter uses tested, consolidated protocols for the latest IT security technologies in order to prevent and mitigate exposure to the risk of threats to data security within the processing framework envisaged by the corporate IT systems. More specifically, Saipem uses IT service suppliers to constantly monitor, prevent and mitigate the risk of cyber attacks, by using the leading prevention and protection tools available on the market (further detailed information is available in the specific "IT System" section in the financial statement).

The volatility of market conditions and the possible deterioration of clients' financial position can cause delays in client payments for the services provided based on the contractual provisions, and the acknowledgement and subsequent payment of variation orders and claims regarding current agreements.

Description and impacts

The volatility of market conditions and the possible deterioration of clients' financial position can cause delays in client payments for the services provided based on the contractual provisions, and the acknowledgement and subsequent payment of variation orders and claims regarding current agreements. These cash flow fluctuations may occur even though the contractor and client make it a practice to cooperate in the search for an agreement that satisfies both parties and aims not to compromise the correct performance of works or delay project completion. Therefore, Saipem is exposed to the deterioration of its working capital, with economic and financial impacts on the Group and potential damage to its reputation in the industry in question and on the financial markets. Furthermore, the Group is exposed to numerous financial risks: (i) a market risk arising from exposure to fluctuations in interest and exchange rates and to commodity price volatility; (ii) a default risk arising from the possibility of non-performance of a counterparty; (iii) a liquidity risk arising from the lack of adequate financial resources to cover short-term commitments; (iv) a risk related to the possible downgrading in the credit rating assigned by the principal rating agencies (further detailed information is available in the specific “Financial risks” section of the financial statement). Moreover, changes in national tax regimes, tax incentives, rulings of the tax authorities, international tax treaties and also risks connected with their application and interpretation in countries, in which Group companies operate, can expose Saipem to tax risks (further detailed information is available in the specific “Financial risks” section of the financial statement).

Mitigation

LThe Company uses various techniques, starting from the negotiation phase, in order to obtain the most favourable conditions (e.g. contractually agreed advance payments) and to monitor its contracts (e.g. with stringent procedures to obtain the certifications required to proceed to invoice, or by constantly monitoring and reporting to the client all the changes to the contract or to the working project), in order to maintain positive or neutral cash flows during the various project phases. Financial risk management (market risk due to exchange rates, interest rates, commodities, credit risk, liquidity risk, downgrading risk) is based on centrally issued Guidelines with the aim of standardising and coordinating Saipem Group policies on financial risks (further detailed information is available in the specific “Financial risks” section of the financial statement). Saipem constantly monitors changes in tax legislation and its compliance with the latter, in order to minimise the impacts of its operations in all the countries involved by using internal resources and tax consultants.

The Company operates in the highly competitive sector of services for the Oil & Gas industry, which tends to be strongly influenced by hydrocarbon price trends on international markets that impact the demand for the services offered by the Company and the associated profit margins. The Oil & Gas service industry has, therefore, shown increasing competition on prices for lump sum, turnkey contracts.

Description and impacts

The Company operates in the highly competitive sector of services for the Oil & Gas industry, which tends to be strongly influenced by hydrocarbon price trends on international markets that impact the demand for the services offered by the Company and the associated profit margins. The Oil & Gas service industry has, therefore, shown increasing competition on prices for lump sum turnkey contracts in Offshore and Onshore Engineering & Construction services and for rates of vessels in the Offshore and Onshore Drilling market. More specifically, the preparation of bids and the calculation of the price are the outcome of an accurate, precise and timely estimation exercise that involves various corporate departments, which is further supplemented by a risk assessment to cover the areas of uncertainty inevitably present in each bid (so-called contingency). Despite these efforts within Saipem, the costs, revenues and, consequently, the margins throughout the contract that the Company makes on lump sum contracts, could vary significantly from the sums originally estimated for many reasons linked, for example, to: i) bad performance/productivity of suppliers and subcontractors, ii) bad performance/productivity of our workforce, iii) changes in the working environment (so-called order change) that were not acknowledged by the client, iv) worse weather conditions than those forecast using the statistics available at the time; v) a rise in the price of raw materials (e.g. steel, copper, fuel, etc.). All these factors, plus the other risks generally inherent in the sector in which Saipem operates, may mean additional costs, unrecognised revenue and a consequent reduction in margins from those originally estimated, with even a significant decrease in profitability, or losses on projects. The outcome of such significant differences could worsen the Group's economic-financial results and damage the company's reputation in the relevant industry. If such significant differences arise, the Group's economic and financial results could deteriorate and damage the Company's reputation in that particular industry.

Mitigation

To align its cost and competitive profile to the current oil and gas price scenario, the Company is implementing a new business model based on the “Fit for the Future 2.0” programme, whose various initiatives also envisage a rationalisation of structural, fabrication yard and vessel costs. Moreover, in the current market scenario of hydrocarbon prices, the Company is doing its utmost to apply the most advanced best practices of the relevant industry and of project management, and to identify and implement various new initiatives and solutions to reduce its costs by using more efficient processes and technologies.

The Company depends greatly on the professional contribution of key personnel and highly specialised individuals.

Description and impacts

The Company depends greatly on the professional contribution of key personnel and highly specialised individuals. Key personnel are “Senior Managers with strategic responsibilities” (further detailed information is available in the specific section in the “2019 Remuneration Report”). Highly specialised individuals in the Group are those whose skills and experience are essential for completing operational projects and for Saipem's growth and development. If the relationship between the Company and one or more of the aforementioned resources breaks down for any reason, there are no guarantees that the Company can promptly replace them with equally qualified individuals, who can ensure the same operational and professional contribution in the short term. If the relationship with one of the key figures breaks down, the inability to attract and retain highly qualified personnel and competent management personnel, or to supplement the organisational structure with individuals capable of managing the Company's growth, could negatively affect activities in progress, future business opportunities and Saipem's strategic and commercial position.. Moreover, the development of Saipem’s future strategies on international markets will largely depend on the Company’s ability to attract and retain highly qualified, competent personnel of different ages, nationalities and genders. Lastly, the regulatory developments in employment legislation in the countries in which the Company operates expose it to various kinds of risks in human resource management, which could cause internal inefficiencies and disputes.

Mitigation

Development Committee was set up not only to monitor and steer young people's development and career, but also corporately assess their professional and managerial progress. Furthermore, the Remuneration Policy, the primary tools and objectives of which are set out in the Remuneration Report, aims to attract, motivate and retain high-profile professional and managerial resources, and align management’s interests with the priority objective of creating value for the shareholders in the medium-long term. Senior Management intends to become more effective and efficient and to facilitate the digital transformation process to manage and develop human resources. The Company has a consolidated corporate process available to asses and map competences and gather together the experiences of its personnel thanks also to the efforts it has made to capitalise on its technological investments and results achieved in the K-map project. The Company’s continual expansion into areas and activities that demand additional knowledge will require plans for employing international and local management and technical personnel with different skill sets. Saipem has, therefore, developed a planning process for the Human Resources Group based on the skills available and those required. As established by the Code of Ethics, Saipem undertakes to fully comply with applicable legal and contractual provisions, and offer equal opportunities to all its employees,. It will ensure they all receive a fair, statutory wage treatment, based exclusively on merit and expertise, without any discrimination whatsoever. In conclusion, the Group monitors legislative developments concerning personnel management in all the countries in which it operates, or in which it is commercially interested in operating, with the assistance of advisors on labour legislation.

In executing its projects and throughout its normal activities, the Group relies on numerous suppliers of goods and services and subcontractors and this sometimes involves partners. Any inadequate performance by suppliers, subcontractors and partners could generate an inefficient supply chain and consequently lead to additional costs.

Description and impacts

In executing its projects and throughout its normal activities, the Group relies on numerous suppliers of goods and services and subcontractors and this sometimes involves partners. Any inadequate performances by vendors, subcontractors and partners could generate an inefficient supply chain and consequently lead to additional costs linked to the difficulty in replacing suppliers of goods and services, subcontractors and partners identified to carry out the activities or having to procure goods and services at higher prices or resulting in delays in the completion and delivery of projects. Deterioration in relations with suppliers, subcontractors and partners could transform into a competitive disadvantage linked to a reduction in Saipem’s negotiating power, with subsequent increases in time and costs, worse contract terms and conditions, and deterioration in commercial relations with the client and in the Group’s economic results.

Mitigation

In order to prevent and mitigate these risks, the Company has set up a well-structured qualification and selection system in order to collaborate with highly reputable, reliable suppliers and subcontractors. Saipem has also undertaken numerous operational and organisational initiatives as part of the “Fit for the Future 2.0” programme, in order to improve the effectiveness and efficiency of its internal processes, which are also exposed to a series of risks of various kinds (e.g. inaccurate selection or incorrect stipulation of contractual clauses or requirements in terms of quality or quantity), which proceed to affect project performance of the projects in the various divisions. Moreover, Saipem is exposed to risks linked to unethical conduct of its suppliers and subcontractors. Saipem mitigates and prevents such risks by using various tools, audits and training programmes. Saipem asks its suppliers, subcontractors and partners to read and accept in the complete Model 231 which contains the Code of Ethics, the principles of which are based on the United Nations’ Universal Declaration of Human Rights, the Fundamental Conventions of the ILO (International Labour Organisation) and the OECD Guidelines for Multinational Enterprises. (further detailed information is available in the specific “Consolidated non-financial Statement” section).

The Group is subject to the risk of fraud and/or unlawful activities by employees and third parties (e.g. corruption, lack of transparency, leakage of confidential information, non-compliance with corporate procedures and regulations).

Description and impacts

The Group is subject to the risk of fraud and/or unlawful activities by employees and third parties (e.g. corruption, lack of transparency, leakage of confidential information, non-compliance with corporate procedures and regulations). More specifically, Saipem conducts its business with subcontractors, suppliers and partners that could commit fraudulent acts in concert with employees to the detriment of the Company. Furthermore, the Group operates in various countries with a high level of fraud and corruption, according to the “Corruption Perception Index” of Transparency International. As regards the risks related to possible fraud or unlawful activities by employees or third parties, Saipem is also particularly exposed to risks linked to the protection of information and know-how, as the Company relies on information, data and know-how of a sensitive nature to conduct its business, which is processed and kept in documents, including in electronic format. Unauthorised access and circulation by employees or third parties could not only be construed as fraud or unlawful activity, but could also harm Saipem. The possibility of non-conformities or erroneous applications of the European Directive on privacy (General Data Protection Regulation - GDPR) within the Group, which could lead to the application of sanctions to the detriment of the Company, cannot be ruled out.

Mitigation

The Company carries out regular audits and checks, in which it is also assisted by external consultants. Moreover, even though Saipem has constantly updated not only its Internal Control System and Model 231, including Saipem’s Code of Ethics, within the companies of the Group, but also its Organisational, Management and Control Model for the Group companies (including those with head offices abroad), the possibility of fraudulent or unlawful conduct cannot be totally ruled out. Saipem provides its employees and stakeholders with an information channel, monitored by the Supervisory Board to ensure confidentiality. This channel enables any problems regarding the internal control system, financial reporting, corporate administrative liability, fraud or other topics (e.g. breaches of the Code of Ethics, mobbing, theft, staff safety, etc.) to be reported. Further detailed information is available in the specific section of the Board of Statutory Auditors’ Report to the Shareholders’ Meeting. Over the years, Saipem has also developed a management system that has recently obtained certification for the international standard ISO 37001 - Anti-bribery Management Systems (published by the International Organisation for Standardisation - ISO), which provides a major control mechanism to prevent and combat bribery. The ISO 37001 standard sets out the requisites and provides guidelines to help organisations prevent, detect and address corruption, and comply with the anti-corruption legislation and any other voluntary commitments applicable to their own activities. In order to manage the risks linked to the leakage of confidential information, it is important to point out that Saipem uses IT security technologies and procedures to mitigate such exposure (further detailed information is available in the specific "IT System" section of the financial statement). The Company has set out the principles and regulations, with which the Group must comply in the internal management and external communication of corporate documents and information concerning Saipem, with special reference to inside information (further detailed information is available in the specific section of the “Corporate Governance and Shareholding Structure Report”.) Lastly, as of April 2018, Saipem has adopted a special Privacy Organisational Model in order to guarantee compliance with the European Directive on Privacy (General Data Protection Regulation - GDPR).

Saipem's business activities in operational projects to upgrade, service or dispose of assets use internal personnel and/or subcontractors. This exposes the Company to possible incidents that could negatively affect people's health and safety and the environment. Moreover Saipem is subject to national and international laws and regulations on the protection of health, safety and the environment.

Description and impacts

Saipem's business activities in operational projects to upgrade, service or dispose of assets use internal personnel and/or subcontractors. This exposes the Company to possible incidents that could negatively affect people's health and safety and the environment. Moreover Saipem is subject to national and international laws and regulations on the protection of health, safety and the environment during its various business activities. Despite the Company’s major efforts in the areas of health, safety and environmental protection, events cannot be ruled out that could compromise people's health or the environment during normal Saipem Group activities. Furthermore, such events could involve criminal and/or civil penalties against those responsible and, in some cases, could be considered a breach of safety regulations, pursuant to Italian Legislative Decree No. 231/2001. As a result, there would not only be the costs of the penalties and charges imposed on the Company to comply with the environmental, health and safety legal and regulatory obligations, but also impacts on Saipem's image and reputation. In order to carry out EPCI projects, drilling and other services in the energy industry, the Group also possesses numerous assets, especially specialist vessels (e.g. to lay pipelines and lift structures), Offshore and Onshore drilling rigs, production/processing/storage and offloading vessels commonly known as FPSOs, Onshore equipment (e.g. to lay pipelines), fabrication yards and logistics bases. The Group’s assets are also subject to the normal risks associated with ordinary operations and to catastrophic risks linked to the climate and/or natural disasters, which can impact on people's safety and on the environment. These risks, linked to ordinary operations, may be caused by: (i) incorrect or inadequate manoeuvres and work sequences that damage assets or plants; (ii) incorrect or inadequate ordinary and/or extraordinary maintenance. Even though Saipem has specific know-how and competences and has set up internal procedures to conduct its operations, it regularly carries out maintenance work on its assets in order to monitor their quality and degree of reliability. Nevertheless, accidents involving assets or plants during the work cannot be completely ruled out.

Mitigation

The Company has, therefore, developed an HSE (Health, Safety and Environment) management system, which complies with the legal requirements in force and with the international standards ISO 14001 and OHSAS 18001,for which Saipem has been awarded Group certification. More specifically, HSE risk management is based on the principles of prevention, protection, awareness, promotion, and participation and aims to guarantee workers' health and safety and protect the environment and the general well-being of the community. Saipem has launched a series of specific mitigation initiatives regarding the risks for people's health and safety, the most important of which include: - its continual, renewed implementation of its “Leadership in Health & Safety” (LiHS) programme, which aims to reinforce the corporate culture of health and safety; - the campaign dedicated to “Life Saving Rules”, aiming to focus attention on hazardous activities and on what each individual can do to protect him/herself and others; - the development of advanced Occupational Medicine and Health Surveillance activities. Saipem has developed a well-structured system of prevention, management and response to spills to combat the risks of environmental protection. The Company has launched various specific initiatives to mitigate the risks of environmental preservation, of which the following deserve a special mention: - measures designed to eliminate the risk of spills and to implement measures and actions to prevent them spreading, should they occur; - specific maintenance programmes prepared for the asset fleet to prevent fluid leakage. Saipem promotes water saving and water management programmes, e.g. its Water Management Plan (further detailed information is available in the specific section of the “Consolidated Non-financial Statement”.) Lastly, in order to mitigate the risks linked to asset management, Saipem bears significant costs to service the assets it owns. It has developed various prevention initiatives, which include its Asset Integrity Management System, a system that establishes a systematic management of critical elements, the identification of Key Performance Indicators and the creation of a task familiarisation card to train personnel assigned to specific roles or to the use of critical equipment. More specifically, Saipem regularly renews the certifications issued by the appropriate classification bodies and by Flag Authorities, following the inspections by the classification bodies on board all the Group-owned vessels. Furthermore, the technical specifications and type of each vessel in Saipem’s fleet must satisfy the requirements of the international regulations applicable in the maritime sector and in the Oil & Gas industry (further detailed information is available in the specific section of the “Consolidated Non-financial Statement”.)

A significant part of Saipem’s operations is conducted in countries, which may be politically, socially or economically unstable.

Description and impacts

A significant part of Saipem’s operations is conducted in countries, which may be politically, socially or economically unstable. Developments in the political framework, economic crises, internal and external social conflicts may temporarily or permanently compromise the Group’s ability not only to operate cost efficiently, but also to recover Company assets in those countries, or may require specific organisational or management interventions in compliance with Saipem corporate policy, where possible, in order to ensure current activities in progress can continue under different conditions from those originally anticipated. Moreover, Saipem's operations, personnel and assets are present in many nations with potential exposure to terrorist threats by various extremist groups. Additional risks associated with operations in these countries are: (i) the absence of a stable legislative framework and a change in the rules and regulations valid within the territory where it is operating, including laws that implement international protocols or conventions for that sector of activity; (ii) uncertainty over the protection of the foreign company’s rights in the event of contractual breaches by private companies or state entities; (iii) penalising developments or applications of laws, regulations, unilateral contract amendments, which reduce asset value, forced negative investments and expropriations; (iv) various types of restrictions on construction, drilling, import and export; (v) a change in local legislation that imposes the use not only of certain numbers of staff, but also of goods and services supplied by local companies (so-called local content). Moreover, the legislative framework also impacts on Saipem's activity procedures. Any adoption of more restrictive or unfavourable provisions, or the imposition of obligations for adjustments or additional compliance linked to Engineering & Construction and Drilling activities, may lead to changes in operating conditions and require increased investments, production costs or at least slow down activity progress. Any breaches of the regulations could restrict the Group’s activities, or force it to pay heavy fines, sanctions or penalties if it fails to comply with the laws and rules on health, safety and environmental protection. Lastly, as Saipem conducts its business activities in a global context where it manages diversity arising from the different socio-economic, political, industrial and regulatory situations, the Group is exposed to numerous scenarios in terms of staff relations and trade unions, if and when they are present. If not properly handled, these relations can expose the Company to risks linked to staff relationships and even with the trade unions, which could cause extra costs and impact on the time frames of the activities currently in progress in the operational sites and on Saipem’s projects, and with negative repercussions on the Company image and reputation.

Mitigation

Saipem is committed to constantly and promptly monitoring the political, social and economic developments and terrorist threats in the countries involved, by using specialised Group resources and providers of security services and information analyses. Therefore, Saipem uses a specific risk assessment model to regularly monitor its exposure to the political, social and economic risks of the countries in which it operates or intends to invest in. More specifically, Saipem follows a structured security model, based on the criteria of prevention, precaution, protection, information, promotion and participation, in order to reduce the risk arising from the actions of natural or legal persons, who expose the Company and its assets, people, goods, image and reputation to potential harm. More specifically, Saipem also uses agencies, which provide security services in the countries in which it operates in order to prevent those risks. These agencies could expose Saipem to risks of breaching human rights while providing their services. To counteract this risk, Saipem has introduced mitigation actions consisting of training activities and regular monitoring. In cases where Saipem’s ability to operate is compromised, demobilisation is planned to protect personnel and any Company assets, and any operational downtime is minimised by using solutions to speed up a return to ordinary activities, once favourable conditions have been restored. These measures can cause increased costs and delays and negatively impact the profit margins of projects completed in those countries as a result. Moreover, Saipem constantly monitors legislative developments of various kinds and compliance with same in order to also minimise the impacts of its operating activities in all the countries involved. Lastly, to consolidate its presence in the territories and to mitigate the impact of its operating activities on the local economy and the risks generated by problematic relations with the organisations operating in the same area, Saipem adopts an engagement system with its local stakeholders. It aims to keep a dialogue open, strengthen relations and create shared value, especially by encouraging active participation in the socio-economic development of the areas in which it operates (further detailed information is available in the specific section of the “Consolidated Non-financial Statement”). Furthermore, Saipem has had and continues to face the complex task of adapting its work force to the major changes in the market context in which it operates and of introducing not only its new, divisional business model, but also the organisational and procedural changes behind its “Fit for the Future 2.0” programme, taking into consideration relations both with the personnel and with the trade unions in the countries in which it is active. Saipem actually pays maximum attention to industrial relations in the countries in which it operates in order to mitigate and prevent such risks. Saipem is committed to reinforcing relations and communication with personnel and trade unions, and to signing and renewing specific agreements with the social parties involved (further detailed information is available in the specific section of the “Consolidated Non-financial Statement”).

Sustainability rating agencies assess the level of sustainability of Saipem’s business strategy and its performance in terms of environmental, social and governance matters. If these rating agencies were to negatively assess Saipem, this could harm not only the company image and reputation, but also the trend of its share price.

Description and impacts

Sustainability rating agencies assess the level of sustainability of Saipem’s business strategy and its performance in terms of environmental, social and governance matters. If these rating agencies were to negatively assess Saipem, this could harm not only the company image and reputation in a particular industry and among its main clients, but also the trend of its share price. In fact, financial stakeholders have recently shown increasing attention not only to performance in environmental, social and governance matters, but also to the level of sustainability of its business strategy.

Mitigation

Saipem has adopted a sustainability model to guide all corporate processes and lead towards excellence and the achievement of long-term objectives to prevent, reduce and manage potential risks. Saipem complies with the principles of the UN’s Universal Declaration of Human Rights and the OECD Guidelines for Multinational Enterprises and is committed to promoting and complying with the principles established by the United Nations’ Global Compact. Saipem specifically conducts an annual materiality analysis involving the main external and internal stakeholders to identify the sustainable aspects of its business that could most affect its stakeholders' assessments and decisions of major importance for the Company. Saipem has, in fact, adopted a transparent, proactive approach, which engages and involves its main international and local stakeholders. Lastly, Saipem is committed to monitoring the main sustainability performance indicators (further information is available in the “Consolidated Non-financial Statement” and the “Sustainability Report”.)

SCIGR players

Administrative liability

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